#3296 - Stakebuilding Crib Sheet - Mergers and Acquisitions (Private Acquisitions)

Stakebuilding

1. Advantages of Stakebuilding

   1. Acquire shares at market price before an offer is made

      1. Can be cheaper as won’t be paying a premium at this point

      2. Can be cheaper as share price may increase when offer announcement is made

   2. Closer to reaching 50% in the target’s voting shares required by Rule 10 of the Code

   3. If percentage kept below 3% then don’t need to alert anyone DTR 5.1.2R

   4. Closes out rivals

   5. Shareholders may be more likely to accept an offer if offeror is already a hefty shareholder

2. Disadvantages of Stakebuilding

   1. Snapping up the shares could cause the price of the shares to increase

   2. Offeror will own the shares if the offer fails

   3. Could trigger an announcement if there are rumours and/or fluctuations in market price

   4. 974(2) CA 2006 Prior purchases do not count towards the 90% squeeze out provisions

   5. A purchase may dictate the level or nature of the consideration the offer may pay pursuant to the offer
      

3. Implications

   1. Rule 4.1 prevents anyone other than the offeror from building a stake in the offeree where they have confidential price-sensitive information about an intended offer, until the offer, or approach, is announced

   2. Rule 5.1 prevents the offeror acquiring any interest in the offer company shares which would carry 30% or more of the voting rights in the offeree company except where a circumstance in Rule 5.2 applies

      1. Rule 5.2(a) acquisition from a single shareholder, when it is the only acquisition within a 7-day period

      2. Rule 5.2(b) acquisition immediately before a 2.7 announcement

      3. Rule 5.2(c) After a 2.7 announcement and the offeree company board has agreed to the acquisition, OR the offeree company board has recommended the offer, or a competing offer OR the first closing date of the offer has passed and the offer has been cleared on competition grounds OR the offer is unconditional in all respects

      4. Rule 5.2(d) acquisition by way of acceptance of a bid

   3. Rule 9 If a person does acquire a 30% interest, they must make a mandatory bid

      1. Irrevocable undertakings do not count

   4. Rule 6.1 If there is an acquisition within 3 months prior to an offer period, the offer must be on the same or better terms

      1. STATE OFFER PERIOD

   5. Rule 11.1 If there is an acquisition within 12 month prior to an offer period for cash and those shares carry 10% or more of the voting rights then the offer must be in cash or have a cash alternative

      1. STATE OFFER PERIOD

   6. Rule 11.2 If there is an acquisition within 12 month prior to an offer period for share for share exchange & those shares carry 10% or more of the voting rights then the offer must be in form of a share for share exchange

      1. STATE OFFER PERIOD
         

4. DTR 5

   1. Applicability

      1. DTR 5.1.1R(1) DTR 5 applies to an issuer whose Home State is in the UK

         1. Home State = registered office in the UK

      2. DTR 5.1.1R(3)(b) DTR 5 applies to an issuer with shares traded on a regulated or prescribed market

         1. Regulated market is the Main Market

         2. Prescribed Market is AIM (FSMA & MiFID)

   2. When is notification required?

      1. DTR 5.1.2R a person must notify the issuer of its interest in the shares when the percentage of voting rights a person holds crosses certain thresholds

         1. A person can be a company

         2. DTR 5.1.2R(1) a person must notify a UK company if the percentage of voting rights he holds, directly or indirectly, reaches, exceeds or falls below 3% and every whole percentage above 3%

            1. Non-UK issuer threshold is 5%

            1. DTR 5.1.2 specifies indirect holdings and includes DTR 5.1.2(e) subsidiaries

         3. DTR 5.1.1R(6) To calculate the thresholds the percentage figure shall be rounded down to the nearest whole number

      2. DTR 5.3.1R Must also consider direct or indirect holdings in qualifying financial instruments which give the right to acquire shares with voting rights in the company

         1. DTR 5.3.2R Gives examples of such instruments

      3. DTR 5.6.1R A listed company is obliged, at the end of each month during which there has been an increase or decrease in the number of its issued voting shares, to publish a statement of the total number of voting rights in the company through an RIS

      4. DTR 5.6.1AR A listed company must publish the same information after a transaction which produces a material change in its voting rights

         1. DTR 5.6.1BG Defines a material change as an increase or decrease of 1% or more

   3. Timing for the notification

      1. DTR 5.8.2R(2) The person must notify the company in which he holds the rights

         1. DTR 5.8.3 ASAP or within 2 trading days after the day when he became aware, or should have become aware of...